Diageo set to post higher half-year profits despite US whisky tariffs

Spirits giant Diageo is set to post higher half-year profits and sales as investors wait to learn the impact of US tariffs on its whisky brands.

Published 26th Jan 2020
Updated 21 st Sep 2023

As with the rest of the industry, the Talisker and Singleton maker saw its Scotch whisky exports to the US hit with a 25 per cent tariff on single malt at the end of last year.

The impact of the tax on Diageo will be revealed when it issues its first-half trading update on Thursday January 30.

"Alcohol has been one of the areas targeted with additional tariffs in recent trade clashes, so investors will be keen to hear Diageo has weathered the storm so far," said Hargreaves Lansdown equity analyst Nicholas Hyett.

"The group exports Scotch whisky around the world, has invested heavily in Asia, and been growing its US bourbon business."

The brand's portfolio of blended whiskies, which includes Johnnie Walker, may help to reduce the impact of the tariffs, as whisky blends are exempt.

Despite the US tariffs, analysts have forecast 4.2 per cent organic net sales growth for the six months to December.

In September, Diageo hailed a "good start" to the financial year but warned investors that it is "not immune" to global trade tensions.

Within the last full financial year, Diageo saw operating profits jump by 9 per cent to £4 billion.

Investors will also be keen to see how drinks trends have been progressing over the six months and whether Diageo's focus on premium brands is bearing fruit.

Premiumisation has been a key trend in drinks for a number of years but Fever-Tree's disappointing festive trading update may raise questions over long-term growth for premium brands.

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However, Mr Hyett said Diageo's "more global and more diversified" business may help to protect it from any slowdown in the trend.

As reported last week, the Government is working to persuade the United States to remove tariffs that are damaging to the Scotch whisky industry, but progress is yet to be made.

Conor Burns told MPs that the Government "will stand up for the Scots whisky sector", and advised members of the SNP against "unwise and unwelcome" attacks on Donald Trump.

The US imposed a 25 per cent duty on Scotch whisky and liqueurs last October as part of a long-running dispute at the World Trade Organisation (WTO) over aircraft subsidies.

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Known for cake making, experimental jam recipes, Champagne, whisky and gin drinking (and the inability to cook Gnocchi), Rosalind is the Food and Drink Editor and whisky writer for The Scotsman, as well as hosting Scran, The Scotsman's food and drink podcast.
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